GP practice mergers: what you need to know
Mergers in primary care
Whilst the term ‘merger’ is used to cover a very broad range of transactions between providers in primary care, it is generally used to cover a situation where two or more practices come together under common ownership.
This common ownership model may take several different forms. For instance, in a situation where two practices are merging (Practice A and Practice B):
- The owners of Practice A may take over the ownership and operation of Practice B with the owners of Practice B falling away
- The owners of Practice A and Practice B may join together to jointly operate both practices
Whichever model applies, any practice thinking about merging will need to weigh up the potential benefits as well as disadvantages in order to determine whether it is the right decision for all parties.
Benefits that come from working at scale
There are several potential advantages of merging, depending on the circumstances they may include:
- Creating greater stability as a practice or group of practices (this is usually achieved through the creation of a larger partnership owning and operating the practices or through the practices falling within a larger existing organisation)
- Creating a greater opportunity to establish broad multi-disciplinary teams that enable an effective output to proper triage
- Creating the ability to offer increased or extended patient access
- Reducing costs by bulk buying supplies across multiple sites/practices
- Creating the opportunity to reduce the base line costs through the sharing of functions, facilities, and premises
- Creating the ability to reduce workload pressures and the over reliance on temporary staff by establishing a broader more permanent practice team
- The potential to gain greater clinical expertise and skills
Potential pitfalls of a merger and mitigation strategies for success
It is important that the parties communicate effectively throughout the merger to ensure it is successful. The individual practices might wish to elect representatives to meet regularly and discuss the combined ethos, the shared operational functions and ultimately the progress of the merger.
The practice might want to prepare a business plan which identifies:
- The business proposal
- The shared objectives, aims and vision
- Background of practice A
- Background of practice B
- The business plan for year 1, 5 and 10
- Reasons and benefits of merging
- Communication and consultation strategy with staff, patients and commissioners
- Potential timeline
In connection with liabilities, the practice should consider taking action to mitigate the liabilities or to ring-fence them as part of the terms applying to the merger, so it is clear which practice / party is responsible for which liabilities. In addition, there is greater visibility on the likely recurring costs that may be borne by the owners of the merged practice, parties may look to articulate clearly which contracts (commercial contracts) will form part of the merger and those that won’t.
In terms of income and costs, the parties should be clear (and document) how income and costs up to and including the date of merger will be apportioned. This is usually done on a time basis, so those attributable to a specific practice for the period pre-merger will be borne to the party/ parties that operated/owned that practice.
This is difficult to mitigate against since the aim of the merger is to create a larger partnership or ownership by an existing larger entity/organisation.
However, and depending on the parties involved, we would advise that decision making is very clearly set out in the newly drafted partnership agreement (if the merger is between partnerships) or other working arrangements so there is clarity on (i) what is expected from all parties post-merger (ii) how much influence each party will have and (iii) how decisions will be taken.
With partnerships, various different possibilities exist. This may include the creation of an executive team with representation from all practices, creating a list of reserved decisions that require the consent of all or a set majority of partners etc.
All parties should have a shared aim or ethos. Discussions should be had at very early stages to ensure that all parties are working towards achieving the same objectives and are aware of each other’s expectations.
It is important that the proposed merger is communicated with patients and imperative that there is a clear plan to merge the operations of the practices involved. A plan for comms and for the merger of operations should be established ahead of completion.
Be realistic with timescales. The more rushed the process (particularly when it comes to determining the ethos, operational and legal terms governing the practice, or its owners post-merger) the more likely you are to create a period of instability and uncertainty at the outset of the merger.
It would be useful to create a timeline as a reference point and to ensure deadlines are met to avoid any unnecessary delays. A cost analysis of the merger will also help to understand the financial implications of the merger and the practices should seek independent financial advice. The parties should consider profitability, expenses, capital contributions, operating funds, tax, core contract value, assets and redundancy payments.
Other legal, regulatory, and operational considerations
NHS England, Integrated Care Board and CQC approval
Depending on the structure of the merger (in particular, how the core NHS contracts will be handled), the approval of your ICB and/or CQC may be needed. Any such approvals must be factored into the process and timelines.
Premises
The practices should evaluate what they will do with the premises and how best to utilise them. There are several options available including operating from separate premises, operating from one of the current premises (albeit the approval from the ICB will likely be needed, as this will represent a variation to the core NHS contract that stipulates the need to provide services from the locality that is being dropped), or investing in a new purpose-built surgery premises. Consideration must be given to how premises are owned, whether they are leased or owned and if the latter, whether the premises are owned as a partnership asset or a personal asset – and how they will be handled on completion of the merger (i.e. will there be a sale and leaseback, will they be acquired by the continuing partners/ owners etc). Any tax consequences that arise from the proposed handling of premises (whether CGT, SDLT or otherwise) should be considered early and borne in mind.
Retiring partners
It may be agreed that some partners will retire either before or after the merger. Where this is the case, the terms of the partner’s retirement should be agreed and documented. If they are to continue in a salaried role, the terms applicable to their employment will need to be agreed and documented.
Employment and TUPE
The practices will need to give thought to the workforce and consider whether there is a need to take measures in connection with the staff, as a result of the merger. For example, issues concerning duplication in roles, inconsistencies in duties or differences in salary and leave entitlements may arise. Depending on the structure of the merger, there may well be a need to inform and consult with staff in accordance with TUPE regulations.
Key takeaways
This article provides a high-level summary of several key factors to consider when deciding on a practice merger. It is essential to not only make sure that the merger process runs smoothly, but that the operating and legal structure is one that puts you in the best possible position to realise the number of benefits that can come from working at scale.
If you need advice and or support in relation to a merger, please do not hesitate to contact our primary care team.